Hospitals could be hit with financial penalties if they cover up mistakes that cause injury, and patients are to be given a named consultant during their stay in an attempt to improve the safety of care across the NHS, the government announced on Tuesday.

Ministers also plan to legally oblige hospitals to tell patients or relatives if treatment has harmed or killed someone through a new statutory "duty of candour" on providers of care.

Doctors, nurses and all other NHS staff will also be put under a similar obligation of honesty by having their professional codes of conduct beefed up. Those who admit to errors as soon as they have happened will receive a lighter punishment if they are disciplined by their regulator.

The moves have been proposed by ministers following the Mid Staffordshire hospital scandal as part of a drive to make the NHS what the health secretary, Jeremy Hunt, called "a beacon" of great care and the world's safest healthcare system.

The moves were necessary to help restore the public's trust in the NHS, some of whom have been "very badly let down" by poor care, secrecy and a failure to provide enough staff on wards, Hunt said as he set out the government's final response to Robert Francis's report into Mid Staffordshire. Patients suffered, and in some cases experienced harm, as a result of what the QC's public inquiry into Stafford hospital called "appalling care" from 2005 to 2009.

Under Hunt's proposals, hospitals that are not open and honest with patients or relatives about errors that have caused harm or death could have to pay some or all of any compensation that resulted.

Under the current system, all hospitals pay annual fees to the NHS Litigation Authority for it to handle all lawsuits and agree settlements, which are paid out of a central fund. If implemented, hospitals would have to foot part of the bill for payouts, which can reach £8m in the case of babies left brain-damaged at birth because of mistakes.

Hospitals would also risk having their indemnity insurance taken away or reduced if, for example, they told a family that their loved one died because of unavoidable events but evidence proved it could have been prevented.

The plan produced a mixed reaction. NHS Confederation, which represents hospitals, said it supported the plan because it could help create a more open and transparent NHS. But Dr Johnny Marshall, its director of policy, added: "We will want to ensure that any process of reducing or removing compensation-funding is fair and that there are no unintended consequences for NHS trusts."

National Voices, which represents dozens of health charities, warned that patients could lose out if trusts had less money to spend on treatment or staff.

"On the one hand, it's all taxpayers' money, so is this anything more than robbing Peter to pay Paul?" said Jeremy Taylor, chief executive of National Voices.

"On the other hand, could there be unintended consequences? For example, a big payout which destabilises a trust's finances and threatens local services."

A spokesman for Patient Concern, a campaign group, said: "Making hospitals pay compensation for negligent care from their own budgets if they are not open and honest about what went wrong, instead of from the central litigation fund, may encourage better behaviour.

"But if it doesn't, then cuts to services will result. Patients become the losers," he said.

The British Medical Association welcomed Hunt's decision to reject Francis's recommendation that the duty of candour should apply to all NHS staff individually.

But Action against Medical Accidents (AvMA), which campaigns for greater safety for patients, warned that Hunt's limiting of the duty to organisations "would be disastrous, in effect legitimising cover-ups of the vast majority of incidents which cause serious harm to patients".

Hunt planned the duty to only extend to incidents resulting in death or serious harm but, after last-minute representations from AvMA, agreed to review whether it should apply to all incidents resulting in any harm whatsoever.

The Patients Association welcomed Hunt's plan for health professionals to face a new criminal charge of "wilful neglect" of patients. But medical defence organisations, which represent doctors accused of wrongdoing, warned that it would create a climate of fear among staff and discourage them from owning up to errors.

Medical negligence lawyers argue that hospitals often fail to tell those affected by errors what happened and why, and can withhold vital documentation. Hunt said that if the moves to encourage greater honesty worked, they could lead to a dramatic reduction in the £1.2bn which the NHS spends every year contesting and settling lawsuits.

Hunt disappointed groups campaigning for legal minimum "safe staffing" levels of one nurse to eight patients on general medical wards. But his solution to the problem of understaffing across the service, requiring hospitals to collect and display information about staffing levels, was widely welcomed.

Hospital patients having the name of the consultant and nurse responsible for their care displayed above their bed was also welcomed. But patient groups criticised Hunt's rejection of Francis's call for regulation of healthcare assistants.

Main points of the government response to the Francis report

* From next April hospitals in England will have to publish details every month of staffing levels on every ward, as well as how many of those met safe-staffing guidelines. Francis backed legal minimum ratios of staff to patients.

* Hospitals and other providers of care will be put under a new collective legal "duty of candour" to tell patients or their family when mistakes have caused harm or death.

* NHS staff will have a similar duty, but through strengthened professional regulation rather than legislation as some patient groups had been seeking.

* Hospital trusts may have to reimburse a part or all of the costs incurred by the NHS Litigation Authority, in damages and legal expenses, in settling a case where they have not been honest about a patient safety incident which led to injury.

* NHS staff will in future potentially face a new criminal charge of "wilful neglect" of patients in what ministers admit are rare cases of serious failings.

* Under a beefed-up NHS complaints system, trusts will have to publish quarterly reports on what types of complaints they have received and what action has followed, and the NHS ombudsman will increase the number of cases of alleged wrongdoing investigated.

* NHS managers who are deemed to have failed at one trust may be barred from working in the service again under a new "fit and proper persons" test administered by the Care Quality Commission, the NHS care watchdog.

* Healthcare assistants will not be regulated but will in future have to obtain a new care certificate indicating that they are fit to practice and will also become known as "nursing assistants".

* Every hospital patient will have the names of a consultant and a nurse responsible for their care displayed above their bed, as a few trusts already do.